Why Investors Feel So Bullish

By December 10, 20202020, Money Moxie, Newsletter

The stock market exploded higher in November along with cases of COVID-19, just as it did in April. Despite all the challenges of 2020, it seems the market is so bullish that it can only go one way. The reality is that anything could happen. The future is not predetermined, and the market does not think for itself. It is merely a compilation of investors’ views – a popularity contest, or as Warren Buffet calls it, “a voting machine.” For most of 2020, investors have viewed all good and bad news as positive. “Heads I win. Tails I win.” It is all a matter of perspectives–perspectives that I would like to explore.

Government Help
Stimulus in Spring and Summer was 6 times greater and was spent 6 times faster than that for the Great Recession of 2008/2009 (David Kelley, JP Morgan). The impact was incredible! It immediately forced stocks upward. Then it lifted spending, especially on items like homes, cars, furniture, and laptops.

Many Americans are in great need of more help and may get it. This additional stimulus may not come until February and will likely be much smaller than in May. However, with the economy already doing okay, the stimulus would be viewed as positive from the perspective of investors.

Low Rates
The Federal Reserve said it would build a financial bridge to the end of the pandemic, and it has stuck to that statement. It has lowered interest rates and promised to keep them low unless inflation averages move well beyond 2%. This has pushed investors away from low-yielding bonds and into riskier assets, pushing stock prices even higher.

These low rates have also increased the affordability of homes, which has, in turn, pushed those prices up.

One major risk is stocks could get too hot – a problem that contrasts with the uncertainty of 2020.

Improvement
The COVID-19 pandemic won’t last forever. With positive vaccine news, we can now see the light at the end of the tunnel.

With investors and consumers already feeling optimistic, there is the potential for more economic growth.

Investors have anticipated this improvement and continue to push up prices. While we are enjoying the higher market, we recognize that the more hot stocks get, the greater the chance of them being overcooked. We continue to emphasize the need for a good strategy and personalized plan.

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